Transparency

There are no secrets in an Internet age. Yet companies continue to behave as if bad actions can stay hidden.

Paying staff below the legal wage levels stayed “secret” at Sports Direct for less than a year. Boots staff pressured to extract money from the NHS in an unethical way become public within a year.

It did not take a compliance team to draw attention to this behaviour in Boots. Nor did staff raise their heads over the parapet. There was no rush to warn the company risked damaging its reputation.

Instead, social media and the ordinary media dragged the unpleasant facts into the daylight. Company denials soon fell apart. Scores, if not hundreds of staff, then felt confident to confirm the situation.

Yet the wider lesson remains unchanged. From the history of the last decade, it’s clear—if you act in an unethical way it won’t stay secret for long. You might have thought well-paid senior executives would by now have grasped this reality. Not so. At Boots the CEO carried on regardless. Once the facts emerged his exit was inevitable.

If you think ethics and doing the right thing is costly, just look at the cost of being unethical. The lesson is simlpe:

You cannot hide unethical behaviour for long, so don’t bother to try. Keep doing what’s right and you are less likely to go wrong.

Unethical CEOs

Three out of four US employees complain their boss is the worst and most stressful part of their job. True or not, bosses make a real difference to whether staff and the wider world see the company as ethical.

Volkswagen’s CEO Martin Winterkorn was a tough perfectionist. He even carried a gauge while walking around to measure gaps between car doors. In September 2015 he took full responsibility for the “misconduct” and resigned. With rather less courage he also claimed to be “unaware of any wrongdoing” on his part. This was despite allegations he’d been aware of the issue since 2014.

At Turing Pharmaceuticals Martin Shkreli, the founder and former chief executive did not last long. He pushed a minor drug price into the stratosphere. He was gone withing weeks.

The third largest annual challenge facing society is dissatisfaction with leaders. This included company leaders failing to see reputation as a strategic issue. Accountancy body CIMA too highlighted this in a 2007 earlier perceptive report. It cited four reasons:

Accountability, Calculating, Probability, and Character

Remedial action on reputation usually means rebuilding the culture from the ground up. Often it’s a new CEO who must try to steer the company in the right direction.

For example, after taking charge a year ago, Standard Charter’s CEO delivered an angry address to its 1500 top managers. He complained of inappropriate dealings with colleagues and excessive expenses. He argued: risk management and other controls were not as rigorous as they needed to be. He even likened them to a cultural “cancer.”

Yet the new CEO remained as

“…convinced as I hoped I would be, that the ethical culture of the bank is very strong.”

Some possible answers come from a 2012 IBE report on the recovery of trust. The authors studied ethical breaches that occurred at six companies. These were Mattel, Toyota, BAE Systems, The BBC and Severn Trent. What emerged was the need to treat each incident in an individual way. A simple list of “do’s and don’ts” does not work well.

Compliance Staff

When a company like Boots goes off the rails it’s easy to say heads should roll. But which heads? It took a combination of people at VW to distort the past strong ethical position.

“Trust is one of our core business values and is a principal foundation for the ongoing success of Alliance Boots – trust of our customers, employees, partners and the communities we serve. This trust is earned and built upon through our consistent commitment to uncompromising high standards of integrity, service and partnership as the cornerstones of all aspects of our business activity.”

That is exactly what you’d expect in a company code of ethics. But at Boots that trust has been undermined. Tackling the trust deficit now requires targeted interventions. These must aim to control distrust, and show trustworthiness anew. The first need is to make sure there’s no reoccurrence of the failure. Possible actions include:

New compliance procedures

Revised incentives

An overhaul of deviant cultural norms

Removal of guilty or complicit parties.

These are rock bottom requirements. They don’t add up to repairing trust. This demands a further approach: showing the organisation can put things right.

This might mean issuing apologies, paying penance, offering more transparency, and making new investments in promoting ethical practice. The ritual bowing of top executives at both Toshiba and Olympus for example was at least a start on the long road back to respectability. One can hardly imagine Mr. Mike Ashley of Sports Direct doing the same. But he did at least admit to the Parliamentary Committee the company had become too big for him to manage.

Various reports have appeared on how to re-build this precious commodity of trust. For example, a PWC report suggested a four stage route map.

A series of case studies of organisations that lost their trust led the Institute of Business ethics to also suggest a rebuilding route:

All five approaches above can help solve the puzzle of what to do about an ethical disaster.

Transparencycan seldom be avoided these days when it comes to ethical misbehaviour. CEOs who fail to take ethics seriously tend to fall by the wayside, often in a spectacular fashion.

Reputationfor companies continues to be a precious commodity. Once damaged it can be arduous to rebuild.

Compliance staff must learn to pursue values and support the culture and not a tick box approach.

Finally, Trusthas a firm link with ethical behaviour. Formal procedures to support ethical performance can help regain the trust of stakeholders. These include route maps for repairing trust. They provide practical ways companies can begin recovering from an ethical transgression.

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